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Comment by rabidsnail | Hacker News Reader

Why hasn't Apple built a fab yet? Do they still not produce enough iphones to be able to use the full capacity of a major chip fab (it would need to be major because they need to produce chips at high yield at 45nm)? Another company in Apple's position might build a fab and farm the extra capacity out to other companies, but that seems to go against Apple's dna. Still, I think it would make sense to pay some premium for the security of being sure their chip supplier won't decide to stop supplying them with chips.

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Jobs got burned at NeXT in that he spent a huge amount of money on a highly automated, top of the line, assembly system; then due to under-utilization of that system, was never able to be profitable.

Far better to realize that Samsung, TSMC et al. will be able to have better pricing, since they can keep their fabs busy with multiple customers, with no sunk costs.

> Jobs got burned at NeXT in that he spent a huge amount of money on a highly automated, top of the line, assembly system; then due to under-utilization of that system, was never able to be profitable.

And one of the first things he did when back at apple was... get it out of fab altogether. A job which was in fact given to Tim Cook (widely considered to have done a stellar job at it).

1. Fab-building is a nightmarishly expensive proposition, and worse, you need to keep on building them to keep up. I think that's a treadmill that Apple are happy to leave to their suppliers (Intel, TMSC, Samsung et al).

2. Intel might decide not to be such a good friend if Apple get into fabrication.

I can't imagine Intel and Apple being on the greatest of terms right now anyway, due to the Nvidia integrated graphics situation.

The tech industry isn't high school, companies that get into emotional huffs based on this sort of BS don't survive long. I'm sure Intel and Apple are on perfectly fine terms with each other. Intel is not dumb enough to ignore the importance of selling tens of millions of CPUs a year (as Mac components).

>> 1. Fab-building is a nightmarishly expensive proposition, and worse, you need to keep on building them to keep up. I think that's a treadmill that Apple are happy to leave to their suppliers (Intel, TMSC, Samsung et al).

Apple has the money, and if they can use the capacity the marginal cost of production should be lower for them, since there's not a third party taking a cut. Apple's also paying for the treadmill-running through their suppliers (unless they're getting chips at a loss, which I doubt). This is assuming Apple's internal demand is high enough to use the capacity of a whole fab.

>>2. Intel might decide not to be such a good friend if Apple get into fabrication.

If that's the case then Apple can threaten to tell on them. Intel has been down that road before, and I don't think they want to go there again. Also I think that, in the long term, Apple is trying to move away from Intel.

> Apple's also paying for the treadmill-running through their suppliers (unless they're getting chips at a loss, which I doubt).

Yes, but Apple does not bear the entire economic cost of the treadmill, only a portion of it. The rest is borne by other customers of Intel, TMSC, Samsung and the like.

The fact is that Apple can almost certainly get a better deal from being fabless than trying to vertically integrate a cost centre that will be as large as their entire current cash flow. That's the beauty of gains from trade.

> Also I think that, in the long term, Apple is trying to move away from Intel.

Maybe. Maybe not. They moved to Intel in the first place because IBM weren't interested in their business any more. The fab runs for Macs were too small and Apple wasn't enjoying the economies of scale that Intel could offer because it sells chips to many companies.

At this point Apple is such a big buyer of flash memory that for a supplier to cut them off would mean either cutting production or depressing prices, neither of which is good for them. I'm not sure how different it is for SoCs.

I would imagine that this is the reason Apple likes to sit on a huge pile of money instead of giving it to investors. Any supplier that tries to put the hard word on Apple knows that they risk Apple massively investing in a competitor to get another source for components. Apple already has all of the silicon design know-how in house, I don't think they would have trouble finding another supplier if Samsung decided to be difficult.

> I would imagine that this is the reason Apple likes to sit on a huge pile of money instead of giving it to investors.

Most investors want share price growth, not dividends, because in general taxes on capital gains are lower than those on income. Stockpiling cash has a positive or neutral effect on share prices. Paying it out in dividends merely annoys those who would prefer the price to go up.

Why doesn't Apple own an Iron ore mine and run an Iron smelting operation? Why don't they produce their own LCD panels in-house? Who don't they have a Lithium mine and produce their own Li-Ion batteries?

For Apple's needs they are perfectly capable of relying on the market to provide most of their components. Apple has no expertise outside of hardware design, system integration, and software, they are best left to concentrate on where their expertise lies rather than trying to cannibalize the entire supply chain.

I've often wondered why Apple doesn't just buy AMD.

Or Freescale, who has more experience with small chips.

Oh like PowerPC?

The powerpc chips they make are microcontrollers.

Freescale have gone fabless, I believe.

Wow. Nevermind. It's hard to imagine that Motorola (or its spinoffs) isn't fabbing microprocessors anymore, but it looks like that's the case.

AMD is also fabless.

Wait. Who owns the AMD fab in Dresden?

It's no longer AMD's fab, they spinned off their manufacturing arm as a new company named "Globalfoundries".

Wow!!! Nobody notified me that I am unemployed.

No, last time I checked, Freescale's fabs were up and running. Yes, there they are...

Or ARM.

Arm doesn't manufacture anything. They dont't even ship products that other people manufacture. All they do is produce designs for other people to license.

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